A 2016 report by the EU shows, with charts and text, that for several years now, the US dollar has been used less in settlement of international trade than a basket of other currencies, and that the euro is by far the most frequently used “dollar substitute.” In 2012 and 2013 the euro was actually used more for settlement than was the dollar, and the shares of Chinese yuan were modest. While no reason is given in the report for less use of the euro and increased dollar use in the years following 2013, the time frame here suggests a possible correlation with the sanctions against Iran, which is a very important customer for many European countries but, now that the sanctions are lifted, Iran is flatly refusing dollars in exchange for its oil and other products. More than any other factor, this could be the reason behind the US-imposed sanctions.
Just as China minimizes, in its statements for international consumption, the increased use of the RMB (yuan) in world trade settlements, the spokespeople for the euro similarly play down the way the euro is overtaking the US dollar. They seem absolutely petrified of what Washington might do to them if they are seen intentionally to try supplanting the dollar in settlements of world trade.
Mario Draghi (note the careful language) says, for example:
“The international role of the euro is primarily determined by market forces, and the Eurosystem neither hinders nor promotes the international use of the euro.”
Of course, no one in EU officialdom mentions this but the US absolutely shot itself in the foot by levying a fine of almost $9 billion against the French bank BNP Paribas for settling a payment to Iran in US dollars. It was a settlement that was declared “illegal” by the US even though it was lawful in France. They were fined for using dollars. In other words, it not only was seen as gouging but also as blatant disrespect for France’s sovereignty. The US was usurping the role of the UN and the International Court, but on whose authority? This was the epitome of heavy-footed monopolar behavior and it was undoubtedly perceived as a slap in the face to all of Europe. Though no one dares to suggest this, it was quite likely the turning point in US-European relations that encouraged Europe to use euros as much as possible in dealing with non-EU countries.
The following passage of the aforementioned document was a shock to us and is a clue suggesting that Europe was in tune with Russia with regard to their perception of being under Uncle Sam’s heel:
“In addition to these cyclical factors, there is also evidence that medium-term trends for greater multipolarity in the international monetary system, which have been observed since the start of the global financial crisis, continued over the review period.” [our emphasis]
It was, of course, Russian President Vladimir Putin who popularized – if not introduced for the first time – the use of the word “multipolar” in a geopolitical context in his now famous 2007 speech at the Munich Security Conference, referring to the need for a “multipolar world” in contradistinction to the “unipolar” (ie, US-dominated) world. Was Draghi not slyly genuflecting toward Moscow when he used that word in its financial document?
Putin was once quoted at a Shanghai meeting with Chinese partners (real ones) saying that the world must dedollarize international trade in order to let the dollar find its own true market value, thereby reducing the warmaking capability of the US. Those who are aware of this effort to settle trades in anything but dollars are mostly focusing on Russia and China as the lead actors in this movement. But despite their size and clout, these two are bit players, who would likely take decades to put a dent in the dollar’s clout. Not so the EU, which plays the lead role, doing the lion's share of non-dollar international settlements and lending. This is precisely what Putin and Xi want, which is certainly why Putin said at the last Valdai Club meeting that the Kremlin wants a strong EU. Meanwhile the dummies in France were complaining that Putin supported Marine LePen in the last presidential election. We had to hold our sides at this “news” of "Russian meddling"! Putin’s invitation to meet with her in Moscow was most likely intended as a kiss of death for her campaign. We think he likes her personally and applauds her fight for French sovereignty but his main goal is a weak dollar to put an end to US bullying, and for now, the possibility of her pulling out of the euro zone would set back the movement to end dollar hegemony.
His recent meeting with President Macron is a step in this direction. If, as we suspect, Macron realizes that he is part of Putin's dedollarization effort, it is understandable that he is now no longer demanding the ouster of Syrian President Assad and that French businesses are busy inking juicy deals with Iran.
Iran is seeking a way to avoid using US dollars from the EU. Since the Brexit, the euro is viewed with a certain caution. However, the euro option is still on the table.
Further, there are other options, such as energy swaps. There is also the Chinese yuan, which Iran has accepted in the past. And there is the idea of energy swaps, avoiding the use of currencies altogether.
It will be interesting to watch the financial innovations as they are made.
Since this commentary was posted, we learned that a Canadian court awarded families of terror victims a sum of over $1 billion in a suit against Iran. No proof linking Iran to the terror, was submitted to the court, which is acting de facto as a US agent. This latest hostile act against Iran, the country that has aided the Syrians more than any in providing boots on the ground fighting terrorists, will prompt further policies in Iran and its trading partner nations aimed at avoiding use of the USD in international settlements.
Increasingly, we are witnessing a low key war between the US and the rest of the world.